Research by Triodos bank just a few years ago in 2016 indicated that over three quarters (77%) of UK adults supported greater competition from challenger banks.

According to Jamie Johnson, CEO at FJP Investment, such a confronting statistic suggests that alternative banks could offer certain opportunities that traditional banks lack. Below he shares more about the new and re-invested world of consumer finance.

Fast-forward three years, and today we are seeing floods of people opening accounts with newcomers like Monzo and Revolut. In fact, FJP Investment recently polled a nationally-representative sample of over 2,000 UK consumers and found that almost one in five (18%) have already made the transition from a traditional high street bank to a challenger bank. As one might expect, this number was significantly higher amongst millennials, with over a third (33%) claiming to have already made the switch.

The question beckons: why are UK consumers looking to challenger banks? And does this reflect a broader change within financial landscape?

Taking a wider view

Reflecting on the recent performance of the UK savings market more generally can offer valuable insight into why we’ve seen a notable rise in challenger banks. The market has undergone a fundamental shift in the last decade, particularly in the aftermath of the Global Financial Crisis of 2008 and, more recently, Brexit.

This climate of uncertainty has caused The Bank of England to be far more cautious in their decision making. Consequently, the interest rate below 1% for the past ten years, offering consumers little hope that their savings pots might grow. Meanwhile, the rate of inflation has been outstripping interest rates offered by most banks. Unfortunately, consumers are taking a financial hit, and seeing their hard-earned savings declining in value.

Indeed, the aforementioned FJP Investment research revealed that in the last 12 months alone, two fifths (38%) of UK consumers have seen the value of their savings decline.

Yet, the UK remains a proud nation of savers. Traditional savings accounts continue to be the bedrock of most people’s financial strategies, and will likely remain so for the foreseeable future: currently, over three quarters of UK adults (79%) hold some money in savings accounts. However, we cannot ignore the changing attitudes that have taken the market by storm – consumers are increasingly shopping around for alternatives that can better match their needs. Many are turning in the direction of challenger banks.

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Do challenger banks plug these gaps?

Startups like Monzo and Revolut are undoubtedly revolutionising the banking experience, with forward-thinking features and sleek app design proving to be increasingly popular among younger generations of savers. But apart from the attraction of a well-designed app, what else do challenger banks bring to the table?

For one, challenger banks typically offer better rates – of Britons who have joined digital-only banks, or intend to in the next five years, almost a third (31%) say this is why they made the decision. Other advantages, which influenced consumers to make the switch, include the ability to transfer money more easily (28%), free transactions abroad (22%) and the benefit of receiving real-time notifications about spending (22%).

For consumers who are keen to make their money go further, these digital banks offer convenient methods of financial management.

This last point is key: for consumers who are keen to make their money go further, these digital banks offer convenient methods of financial management. Many challenger banks offer individuals greater oversight over their finances and enable a better understanding their spending habits – and perhaps more importantly, digital banks also highlight ways in which they can improve their financial behaviour. For example, many of these apps come with real-time tracking of spending.

Beyond this, they also commonly include features which encourage saving. For instance, a consumer might utilise functions which round up expenses to the nearest pound, before depositing the remainder in a designated savings pot. For those with more long-term financial goals in mind, other functions might help users set monthly budgets and receive notifications if they are overspending.

The general point to note is that consumers are becoming savvier when it comes to saving, in turn making them less reliant on traditional savings methods that can fail to satisfy their needs. It’s encouraging to see more people seizing the opportunity to make the most of their money, and challenger banks are certainly helping.